Author: Baruch

OK, so the other week everyone who was anyone was banging on about the AlphaGo programme from The Google’s DeepMind that can, so far, beat humans at Go. Baruch’s understanding is that this was a different type of AI than we’ve seen with Deep Blue and Watson kicking human butt at chess and Jeopardy. Both of those deployed the main trump card that computers have against human minds — the ability to scan, prioritise, sort and rank huge databases extremely rapidly to come up with statistically likely solutions to well defined questions. All they needed to defeat the humans were mega amounts of computer processing, clever coders, a ludic fallacy and a large, cold room to keep the servers in.

DeepMind, so far as I am told, uses something more akin to analogy in its core processing, with a feedback loop that keeps the focus on a narrowly defined and therefore manageable number of moves. Words Baruch pretends to understand but probably doesn’t, like “neural networks” and “deep learning”have been bandied about. To play Go well, you clearly have to be able to program smart. That said, AlphaGo doesn’t seem terribly parsimonious in its use of processing grunt: a “mere” 2000 CPUs, as well as 280 high end GPUs using what we experts* call parallel processing, so perhaps it’s still just the typical thing of throwing Moore’s Law at something until you have enough computing power to make it work eventually. But it probably isn’t, in which case chapeau, DeepMind.

So overall, it’s mildly interesting, and at a more mercenary level, grist to Baruch’s mill. If the advances made by DeepMind bring us one step closer to the massive disruption digital automation is going to wreak on business and society, then I’m going to be quids in. My current project is about providing investors with an opportunity to take advantage of those transformations, so this can only encourage more people to want to invest when my idea finally goes live. Yay!

We all need to hedge against the coming AI whirlwind, and this is Baruch’s plan. However, his biggest worry is resistance is futile — that even his job as a fund manager is going be replaceable by machines, like all of yours will be. So imagine his horror when he saw this (HT Alphaville) in Wired from back in January.

LAST WEEK, BEN Goertzel and his company, Aidyia, turned on a hedge fund that makes all stock trades using artificial intelligence—no human intervention required.

Oh bollocks, he thought.

But at times like this I think of Douglas Adams, and have learned not to panic.

It all seems to be going wrong for Chinese-American relations when it comes to technology. Late last month Tsinghua University’s purchase of a minority stake in Western Digital was referred to CFUIS, the panel determining if global M&A involves a US national interest. This, contra lots of commentary at the time, wasn’t business as usual, rather the US government drawing a very thick red line around China and saying no nationally significant technology, in this case semiconductor memory, crosses this. And this week the US kicked the feelings of the Chinese People in the goolies by sticking it to ZTE, one of their national tech champions, for selling stuff to supposedly Bad Countries like Iran.

The net effect of this in the near term is bad news for much of the listed semiconductor equity in the US, as a potential purchaser of last resort is removed. Longer term, no-one knows, not even Baruch.

Baruch’s been reading Rise of the Robots by Martin Ford, the 2015 Financial Times and McKinsey (yuk) Business Book of the Year, no less. He’s a bit embarrassed to tell you, avid reader though he be, that this book eventually defeated him*. He stopped reading it and picked up something a bit more light hearted; specifically General Heinz Guderian’s memoirs of leading Germany’s Panzer Divisions in WW2. So far it’s going badly. The Russians keep breaking through, and Hitler’s being a super awful boss.

Anyway, back to the robots. This topic, about whether increased automation and use of robots and algorithms is going to be a Good Thing or a Bad Thing, seems to have become a little cottage industry of late, with not just Martin Ford’s book, but also works by Robert Gordon, Calum Chance, Nick Bostrum and probably a few others, all in the past 18 months. The current spasm of published thought on this matter was probably started off by MIT’s Brynjolfsson and McAffee’s really quite good Second Machine Age a couple of years ago, and hasn’t stopped since. Of course, the great Ray Kurzweil, he of The Singularity is Near, is the true father of the genre, and before that there was pulp science fiction, in Baruch’s case concentrated in the epic comic 2000AD, edited by Tharg from Betelgeuse. Great thinkers such as Elon Musk and Stephen Hawking have also recently weighed in, these latter on the more techno-pessimist side.

As you can see, all or most of these guys can be put on different bits on what Baruch calls his Techno-opto-pessimism spectrum. Most of the arguments, I think, have been set out by Kurzweil, McAfee and Brynjolfsson, and Robert Gordon. A lot of the later books decide to come out on the spectrum where they feel like, and simply selectively reproduce these arguments to justify themselves. Baruch is going to do you a favour so you can seem knowledgeable at dinner parties, without having to do actual, you know, reading of any this stuff. Here it is, his patented Techno-Opto-Pessimism spectrum! Ta Daaa! Look upon his powerpoint, oh ye mighty, and despair.

Baruch’s somewhere in the middle: most people, I think, would put themselves a bit on the left, on the optimistic side. Funny that most of the serious books on the subject are on the left hand side. Anyway, how about you?

*I guess the reason why I stopped reading was that it got a bit repetitive. There’s only so many ways you can explain the idea that not only poorly paid jobs will be automated but tons of middle class ones too.

Don’t feel sorry for him. He’s rich in many other ways and is just trying to milk your sympathy. All he really means is at this very moment he doesn’t run any money. His brilliant strategic idea for reinventing himself is in progress, and boy, let him tell you, he has to beat the billionaires off with a stick. But as of yet no deal has been signed, so there’s no capital to deploy or protect. This means he can view the current market carnage with a certain amount of distance, mixed with a blob of sympathy for those less fortunate than he, i.e. the ones in the market right now.

As of now, US futures are predicting a bloody morning in the US (often the harbinger of a sunnier afternoon, however). What does Baruch think? At times like this, thoughts turn darker. Here are a few observations, in no particular order:

WTF is up with the VIX? Of all the indicators it’s the one I like best to time whooshy markets, and it’s not just not spiking, it’s narcoleptic. That’s a bit scary, telling me the selling is a bit more orderly than it should be. Probably not a good sign.

The fact that the growthiest of the growth stocks are being attacked isn’t great either. Growth is supposed to outperform in a rising rate environment. What we saw on Friday in Cloudy/Big Data-y growth looked terminal multiple related; if earning estimates in your out years didn’t get crushed, the multiple they’re willing to put on the out years just died. Tableau (DATA), Splunk (SPLK) and Salesforce (CRM) have been among the “new tech” darlings, and the reaction to DATA’s guide has been cruel, -50% or so, with widespread collateral damage. That one may take a few years to get back to its previous highs if it ever does*. 3 things going on in this space I think. Macro is biting, the Amazon, Azure and other cloud channels gaining more leverage and offering their own-label competing products, and in the case of Tableau and maybe a few others, IT managers have made the products available to desks, but are the people at the desks really using them? Migration might be slower than people think. Meanwhile, DATA’s management point to low visibility and onboarding too many lower productivity sales dudes. Could be true too.

Another way of saying “low visibility”, by the way, is “we haven’t got any sales at the moment”. Like “extending sales cycles” (or “they’re not buying anything anymore”) it’s one of those wonderful euphemisms we see so often in the business world to make something unpleasant sound nice. My favourite is still “upgrading staff” (or “firing people”).

So I’ve thought about this a lot, because the job of matching Facebook, Amazon, Netflix and Google to a Beatle is one that every investor needs to think about.

Why? Well there’s four of them, for one thing. And just like the Beatles, they’re all “fab”, too, and you had better have appreciated their fabness last year or your performance would have sucked. More seriously, they’ve all got that no-limits platform thing going for them. FANG is like a vortex, sucking in value from everywhere in tech and non-tech industrial sectors. Do you make ethernet switches? Well, you’d better sell to FANG or you’re toast. Do you sell stuff online? Watch your Google page ranking drive your sales. Are you a TV network? Well, you should . . . do something or other with Netflix. What, you advertised the new campaign buying search terms on Bing?! And we can’t launch the service this week because the server guy delivering the new servers got lost? You’re fired. Fred, ring Facebook and Amazon. Etc.

But let’s face it, everyone’s got their favourite FANG, just like everyone has their favourite Beatle. And just as the great thing with the Beatles was that they all had their very distinct personalities, so do the FANGs. This makes both foursomes even cuter and easier to love and have impassioned debates over.

So if each FANG was a Beatle, which one would they be? This is Baruch’s list:

Well, Netflix is easiest. It’s Ringo. Netflix is the most fun of the FANGs, and the least threatening. When asked if he thought Ringo was the best drummer in the world, John replied he wasn’t even sure if he was the best drummer in the band. We have Netflix at home. The kids watch Pokemon and Pretty Little Liars, we watch Breaking Bad (yes I know we’re a bit behind), all harmless except for the meth. Netflix isn’t going to conquer the world, just our high production value video watching habits. So in the end the addressable market is limited. And it’s mostly just content delivery, though we must appreciate the recent attempts at creation. Overall though, if it wasn’t for Netflix, we would likely still be watching over the top video, just from somewhere else. Similarly, the Beatles would likely still have been the Beatles if Ringo hadn’t been the drummer and they’d kept Pete Best, or god forbid hired Keith Moon*.

Baruch is back!! Yes, he has been out of commission these past few years. You may have been annoyed by his lack of any farewell, or any information as to what he was doing or why he had quit blogging. More likely you probably in fact don’t care, but I’m going to pretend that you do, OK?

So why DID he quit blogging? Was his true identity finally discovered by his Swiss gnome employer? Did he accept a secret mission from the Mossad that led him to disappear under deep cover for years? Was he in prison? Did he drop dead? Will he stop asking these pitiful rhetorical questions?

No, no, no, no, and yes: to be honest I got a bit messed up, and took a short break from the world of the markets. When I came back, despite the fact the markets hadn’t actually stopped, the urge to blog had dried up, the energy devoted to other desires, like watching Game of Thrones and most recently, playing World of Tanks. I also thought at the time, hang on, why am I telling all these barbarians* my amazing ideas and thoughts? I’m just showing off. Isn’t it better to keep them to myself? That’s what Spinoza would do. I’m mostly wrong anyway! It was strange, but oddly the most natural thing to do was just to stop this . . . hobby, I guess, which I had previously got lots of pleasure out of.

So then, why start again? Well that’s easy: I’m on the dole and haven’t got anything better to do. Baruch parted ways with his employer about a month and a bit ago in a difference of opinion about the appropriate period to measure performance. Admittedly that performance hadn’t been very good for a while, but there are good reasons for that, too, which I can go into later if you like. It’s OK, Baruch doesn’t consider himself the victim of a conspiracy.

The other thing is, I sort of feel I have something to say again. Over the past few years I’ve been thinking more and more about the long term role of technology in business, society and the economy, and what it means for investing. I’ve got some ideas about that. Yet another thing is, I can actually write substantially about these things, name names if you like, without fear of letting something slip I shouldn’t. I no longer have investors to inadvertently betray. I can’t get fired again, can I? And thirdly, it’s not beyond the bounds of possibility that someone will see these pearls of wisdom, Baruch’s Great Thoughts, and think, aye aye, there’s a clever chap, and give him a huge wodge of cash for him to do something or other with. Spend it on more cars, hopefully: in his absence from your screens, Baruch developed an unhealthy interest in unnecessarily powerful yet beautiful German sports cars. White ones. And they don’t pay for themselves.

So what’s been going on since I was “away”? Well things got better! And now seem to be getting worse. We’ve had arguably a bubble in bonds and may still be in it, Apple got boring, Amazon is now Skynet, China lost its mojo, crude is so cheap we could wash in it, and maybe above all the world has been swimming in free money for ages without any apparent increase in inflation, or growth, tiny dragons, or any of the things people actually predicted.

The Old Times Gang is still there though: Tadas plugging away at Abnormal Returns, Josh Brown still downtown but moving uptown, Felix ecoblogging after a fashion and no doubt recovering after another strenuous Davos. The Epicurean Dealmaker, Michael Jordan-like, keeps on retiring. And Tyler Durden, whoever he may be now, is as brilliantly batshit as ever. If anything HAS actually changed in the eco-blog firmament, Baruch will probably find out as his re-entry into blogging continues but feel free to point out what he’s missed in the comments. Hmmm. I wonder if there will BE any comments?

*That’s you, by the way. “Ultimi barbarorum” was uttered by Spinoza in the vocative tense.

The global Apple obsession is moving into high gear with the iPad3 on sale and the stock near $600, and what we and the world really need is another blogpost on the company, full of superlatives we have already read elsewhere. Baruch is happy to oblige.

Apple is increasingly the sun around which the planets of business revolve. Just taking the tech sector, there is now no major segment which is not being or will not be affected by this expanding giant ball of financial energy. To others (like Microsoft) it’s not a sun; for them, Apple is a black hole, sucking matter and energy into its gaping maw, or a hegemonic swarm, converting adjacent life into copies of itself and extinguishing diversity. For investors, especially ones focused on technology, Apple poses a quandary: do we need to own anything else? Don’t laugh, it’s a serious question.